The VC Outlook January 2009: Challenge and Opportunity in a Buyer’s Market


On Friday,
January 23rd
I joined Rob More of Frazier HealthCare
to participate in a national press briefing on behalf of the National
Venture Capital Association (NVCA)
, in conjunction with the release of the 2008 Fourth Quarter
PricewaterhouseCoopers/National Venture
Capital Association MoneyTree™Report
.  Joining us on the
call were
Maryanne Coughlin,
Director, Technology Sector Analyst, PricewaterhouseCoopers
; Tracy T. Lefteroff
Global Managing Partner,
Private Equity & Venture Capital and Life
Sciences Industry Services
; and
John S. Taylor, Vice
President of Research,
Venture Capital Association.

The data itself clearly shows a pronounced
decline decline in Q4 ’08 venture activity across both Life Sciences and
Information Technology.

Responding to reporters’ questions, I
expressed my strong view that we should expect no quick fixes to the structural
liquidity problems in the US public equity markets for sub $1 billion equity
capitalization emerging growth companies.
For privately held VC-backed companies, I explained that one of the
biggest current challenges for many venture capitalists is maintaining economic
alignment with co-investors in venture syndicates for both new and existing
investments. I also identified the Lehman bankruptcy as a factor which gave
pause to all investors in Q4 and as an important signpost in the global credit
crisis because of the counterparty risk issue.

Most importantly, I asserted that the current
period of turmoil is an exceptionally good time to put new VC money to
  After 28 years in business
and over 12 years in VC, I do have some perspective about investing cycles,
having lived through several financial market crashes and resurrections. Looking
back at our 12 year investing record at
Levensohn Venture Partners, our best investments were made in
companies that we identified as differentiated leaders in their sectors at the
bottom of the last VC cycle—in late 2001 and 2002.
  At that time a different set of circumstances made many
investors stay on the sidelines, creating precisely the opportunities that
everyone seeks on sunnier days. We are seeing those exceptional opportunities again
in 2009.
  It’s a buyer’s market in

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